How Elementary School Friends Turned A Microbrewery Into A Major Brand

Bill Covaleski is living a small-business-owner's dream. He and
his childhood friend, Ron Barchet, started Victory
Brewing Company in 1996 as a small microbrewery and
restaurant in Downingtown, Pa., just outside of Philadelphia.

Seventeen-and-a-half years later, Covaleski
has built that business into a well-known brand that
brews nearly 100,000 barrels of beer a year, sells in 30 states,
and is in the midst of building a new brewery that will more than
double its capacity.

The pair have figured out the secrets to maintaining a
decades-old friendship while rapidly expanding their business.

You could say Victory started
in 1973, whenCovaleski
and Barchet met in the fifth grade on a school bus in
Montgomery County, Pa. Years later, Covaleski was inspired by his home-brewing
father, a man from Pennsylvania's coal country who made just
about everything for himself, to buy his
friend a brewing
kit for Christmas, which started a friendly competition over who
could make the best.

The love for beer ran deep. Barchet eventually quit his day job
as a financial analyst to make a career of brewing beer, taking a
job at the Baltimore Brewing Company. Covaleski took over
for his friend when Barchet went to study brewing at
the Technical University of Munich at Weihenstephan,
the highest-rated brewing program in the world. Eventually
Covaleski followed him to Europe to study at the Doemans
Academy. That was about the time they knew they wanted to
create something for themselves, using their European training in
America.

"On New Year's in 1993, after
some strong Belgian beers, we convinced our wives to let us write
a business plan and maybe go into business on our own," Covaleski
says.

The beer business may sound like lots of fun, but the early years
were tough, marked by long days and sleepless nights.

"As a very small, local business with shallow pockets, hiring the
right people was a serious proposition, one that we couldn't
afford to do from the get-go," Covaleski says. "So we overworked
ourselves, which is probably still true."

Especially in the early days of craft beer, convincing people to
pay a higher price meant you had to convince them that it would
taste better and was made to higher standards. Connecting with
customers and introducing them to the product was one of the
reasons they started out with a 144-seat restaurant attached to
their brewery. The restaurant doubled to 300 seats in 2008.
It also funneled insight
and investment back into the brewing business.

"Having a direct connection with the audience is not only good
for cash flow, but it's great for research and development
because you're in contact with your consumers on a daily basis,"
Covaleski says. "As you might imagine, if you put a couple of
pints of beer in them, they'll tell you very honestly how they
felt about your product."

A strong regional foothold in the Northeast — 36% of
their product is sold in Pennsylvania and 11% in neighboring New
Jersey — and a steady flow of customers from the
restaurant has been the base on which the company successfully
expanded. A new, larger brewery will help kick its growth into
the next gear, with the capacity to produce more than 200,000
barrels a year.

When asked what key advice drove his success, Covaleski points to
a core philosophy that's shaped his business.

"It's just the experience of adaptation, and not
necessarily clinging to a belief," Covaleski
says. "It's what you refer to as the school of hard
knocks: You run into walls and try to make your way around them."

At the same time, the importance of having a founder and partner
that you really trust can't be overstated, he says.

"The fact that we have a long-standing friendship is a real
benefit because we recognize that there's somebody else who's
equally invested in the success of the company, who is going to
be reliable," Covaleski says. "We've adapted very well over the
years, recognized opportunities, and moved decisively as they've
formed."

Looking back, if he could do
one thing differently,Covaleski wishes he had known more about the
complexities of the beer industry when he started. "We were a
little naive," Covaleski says. For example, since they knew nothing
else, they thought that selling to a wholesaler and trusting them
to grow their market share was the way forward. But they found
out that the distributors have so much power that small brewers
can feel like they have little agency or control.

"Literally, your entire future
and prospects are tied up into these contracts you have little
control of," Covaleski says. "I wish I had understood that a bit
better. Inevitably, the valuation of your company becomes
intrinsically tied to your wholesalers. I just never stood back
and appreciated the magnitude of that relationship from the
outside getting into this."

Covaleski has a few goals for the future. The first, maintaining
quality, is actually surprisingly straightforward for him.
Quality is a never-ending series of decisions and choices, he
says. Since beer-making is "at its heart, still manufacturing,"
quality equipment, deep monitoring, and constant investment will
keep quality high.

Second, the pair may have been trained in Europe, but they have
no interest in just copying its beer culture; they want to
continue making great American beer.

"What makes our beers American is the fact that we've taken this
knowledge and experience we've gained in Europe and brought it
here and essentially amplified it to make it more exciting for
the American palate," Covaleski says. "We feel that we're in a
privileged position because there's less structure to American
beer styles, and there's a tremendous range of experimentation
with a base of knowledge that's traditional."

What's most important to him
isn't making money, but repaying the people who believed in them
from the start. The
company essentially has only friends and family as shareholders.
The new brewery is a big bet, and Covaleski holds himself
responsible.

"I want to make sure that the
new plant in Parkesburg is producing 250,000 barrels in five
years or less," Covaleski says, "so everyone's comfortable with
the investment we've made, and so that there are more jobs and a
much bigger Victory family. I just want to give everybody a
return on their investment and on their faith in
us."